“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Goldman Sachs Group Inc (the (NYSE: GS)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 08/03/2000 |
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| End date: | 07/31/2020 | ||||
| Start price/share: | $105.62 | ||||
| End price/share: | $197.96 | ||||
| Starting shares: | 94.67 | ||||
| Ending shares: | 119.18 | ||||
| Dividends reinvested/share: | $36.28 | ||||
| Total return: | 135.93% | ||||
| Average annual return: | 4.38% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,574.79 | ||||
The above analysis shows the twenty year investment result worked out as follows, with an annualized rate of return of 4.38%. This would have turned a $10K investment made 20 years ago into $23,574.79 today (as of 07/31/2020). On a total return basis, that’s a result of 135.93% (something to think about: how might GS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Goldman Sachs Group Inc (the paid investors a total of $36.28/share in dividends over the 20 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 5/share, we calculate that GS has a current yield of approximately 2.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $105.62/share purchase price. This works out to a yield on cost of 2.40%.
More investment wisdom to ponder:
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” — Peter Lynch
